Almarai's Q4 net income slips as subsidies reduce and feed costs rise

Saudi Arabia's Almarai, the Middle East's biggest dairy company, said net income for the fourth quarter of 2021 fell 14.7 per cent year-on-year owing to lower subsidies, the cost of importing feed and cost inflation for farm and dairy commodities.

Net profit attributable to the company’s shareholders for the three-month period to the end of December dropped to 286.5 million Saudi riyals ($76.1m), compared to 335.9m riyals in the same period a year ago, Almarai said in a statement on Sunday to the Tadawul stock exchange.

Fourth-quarter revenue rose an annual 11.5 per cent owing to improved market conditions compared to a prior-year period that was affected by pandemic-related restrictions, the company said.

The results were affected by “subsidy reduction driven by no subsidy in 2021 on corn and soya and without the benefit of subsidy overlap in poultry in 2020", Almarai said. “The second adjustment related to change of alfalfa feed consumption to 100 per cent imported basis. In addition, general cost inflation for farm and dairy commodities further impacted the gross margin, mainly during the second half.”

Almarai's improved revenue levels were “insufficient to offset severe cost pressures”, Egyptian investment bank EFG Hermes said in a research note on Monday.

The rise in revenue was mainly driven by a 21.5 per cent growth in bakery products and 12 per cent growth in dairy products in all of its markets except Bahrain, which was flat owing to the VAT introduction earlier in the year, the dairy company said.

Gross profit decreased by 3.2 year-on-year to 1.23 billion riyals due to farming and dairy commodity cost increases and higher international freight and packaging costs.

The company's general and administrative expenses rose 7.6 per cent in line with business growth, while selling and distribution expenses increased 4.9 per cent in line with volume and revenue growth, it said.

In terms of business categories, profit for Almarai’s dairy and juice business decreased by 6.2 per cent due to higher commodity and feed expenses, while income of the poultry division fell 23.6 per cent because of increased feed cost. However, profit from baked goods increased by 6.8 per cent mainly owing to partial reopening of schools, it said.

The company's annual net income for 2021 fell 21.2 per cent to 1.56bn riyals. Revenue for the year rose 3.2 per cent.

“2021 has proven to be another challenging year. The year did witness further relaxation in Covid-19 related travel movement. However, the continual evolution of the pandemic has caused disruption in the global supply chain and consumer market,” Almarai said.

The company said it will focus on process and cost efficiency and expects 2022 to be a “positive” year.

“We expect the next 12 months to be equally challenging for commodity costs, however, we believe that it will be partly offset by a rebound and resilience in consumer market,” Almarai said.

Despite market headwinds, Almarai plans to invest 6.6bn riyals to expand its poultry business in Saudi Arabia over the next five years.

The company’s board has already approved the investment, which will help double its market share in the segment, it said in a statement last year.

The dairy company is also looking at inorganic growth. Last June, it said it was buying Binghatti Beverages Manufacturing's production complex in the UAE for Dh215m ($58.54m).

Last May, Almarai's subsidiary Western Bakeries bought an additional stake in Riyadh-based snacks maker Modern Food Industries for 150m riyals, pushing its stake to 75 per cent in the company.

Almarai also acquired Bakemart's business in the UAE and Bahrain for $25.47m in March 2021.